There’s no doubt the end of the year is the busiest time of the year. Not only mother nature’s in-climate weather, Black Friday brawls, gift shopping, and event planning. There’s another more tedious season to prepare for, and it’s called Tax Season! The average tax filer is busy collecting receipts, wage reports, and deductable items for the past year. For a small business owner, the tax preparation process is three times more complicated. To help assist, here’s a quick guide to sales taxes that will help you get a good start to organizing your sales tax accounting for the year.
Sales Tax Laws
If you sell goods, you must know the basics of sales tax law. Sales tax is imposed at the Federal level and State level. If your customers don’t pay sales tax, then you must pay the sales taxes, either way, the sales tax must be paid by someone. However, there are a few exemptions for organizations. Currently, there are five states in the US that do not impose a sales tax. Those states are Oregon, Delaware, Montana, Alaska, and New Hampshire. Keep in mind that although these five sales tax-friendly states don’t impose state sales tax, you will still be liable for taxes at the federal level.
Tax Exemptions
Although the term “Tax Exemptions” on the Federal level is discontinued from 2018 to the present due to the change in tax reform, tax exemption for 501c3 Organizations, charities, is still a thing. There are several state-level tax exemption certificates for business, and they all vary by state. These certificates are shown by companies to companies when doing transactions. If you are selling to a company with stateside tax-exempt status, make sure that you document and keep the company’s tax-exempt info in your records. For a list of the types of state sales tax exemptions, check with your state and any state that your company conducts business. To know what exemptions your company qualifies for, talk to your local government tax offices or a lawyer who specializes in sales tax law.
Sales Tax Deduction
The term “Tax Exemptions” on the Federal level, are now called “Tax Deductions,” however, do not confuse that with “sales tax deduction.” Persons and businesses are eligible to receive sales tax deductions on the Federal and state level. People can receive sales tax deductions from purchases such as a home purchase for that year. Businesses can receive sales tax deductions for situations where the business paid sales tax for items used in the course of business. In any case, you must itemize your deductions to receive a sales tax deduction.
Keep Accurate Records
Lots of people toss away their receipts, but not you, for at least several years. Most accounting professionals recommended keeping a paper trail in addition to electronic records as both are fail-safes. Up-to-date POS (point of sale) equipment such as cash registers and POS software have a programmable sales tax calculator. Sales tax calculators are a must to assure that you are accurately charging or paying the correct sales tax amount per purchase. Some cashiers learn the final prices of items by repetition; however, sales tax amounts do change, so always use a sales tax calculator and stay up to date with local and federal sales tax rates.
The Quill is Dead
The late Quill Law was a rule that says a business shall only collect sales tax in the state where they are located. When e-commerce became a norm, people in for example, Kansas could purchase goods from a Texan retailer without paying sales tax. States were missing out on billions in revenue so reform was due. South Dakota vs. Wayfair, Inc., known as the “Wayfair Decision.” The Wayfair sales tax case of 2018 is the case ruled by the Supreme Court that changed the tax game, leading to the death of Quill and the invasion of the Sales Tax Nexus. As a result of the Wayfair sales tax case, Amazon charges sales tax to customers in all but five states (Oregon, Delaware, Montana, Alaska, and New Hampshire), to be safe, be like Amazon.
The Martini
Every state has different sales tax types, rates, exemptions, and more. These variations often lead to thousands of calculations daily and tons of tax registrations per state, the sales tax nexus. As a small business, which often has active owners, that’s a lot of extra work on top of running your company and showcasing your craft to the world. Taking a deep breath yet? The solution that companies big and small choose is the heaven-sent Sales tax outsourcing company or professional. Sales tax outsourcing companies, like Tax Connex, are the assertive knights in shining armor who work for you account for business taxes and have experience navigating the volatile sales tax nexus so that you can focus on running your business.
This article is not intended to provide legal advice. For any tailored advice for your situations in regards to sales tax laws, you should contact a local tax lawyer